Minority shareholder protection in private companies: the role of law and corporate governance frameworks in Uganda

Abstract

Minority shareholder protection has long been a subject of discussion by different authors, all emphasizing the importance of safeguarding their rights thereby promoting economic development. This study examines the role of the law and corporate governance standards in protecting the rights of minority shareholders in Uganda, focusing specifically on private companies. The study assesses the effectiveness of statutory protection accorded to minority shareholders, examines the impact of corporate governance standards on the protection of minority shareholders and proposes best practices and measures suitable for enhancing minority shareholder protection in Uganda. The study adopted doctrinal and qualitative data methodologies. Data was collected through unstructured interviews to collect in-depth information from randomly and purposively selected respondents. The findings revealed that private companies in Uganda are characterized by controlling shareholders and limited attention has been given to the governance in these companies and how such governance affects minority shareholders. Although the law provides for avenues of redress in case of minority shareholder rights abuse, some are impractical, costly and time consuming, leading many aggrieved minority shareholders to opt for an exit rather than pursue enforcement of their rights. In addition, the company owners and directors in these companies lack awareness of governance obligations and available minority shareholder remedies. Further, the absence of minimum governance standards for private companies under the Companies Act Cap 106 undermines minority shareholder protection and limits their ability to do business beyond their second year unlike public, listed and regulated companies. The study recommends a review of the legal frameworks to provide for additional remedies, merge the forums for redress to make the process less costly and protracted, abolition of some requirements like security for costs and introduction of an all-encompassing code of corporate governance to cater for the governance needs of Private Companies.

Keywords: Minority shareholder protection, Law and corporate governance